WiMAX Throttling Lawsuit: Clearwire Can’t Deliver The Goods

Wireless operator Clearwire has had a bumpy few months, and now things are getting worse. A lawsuit has been filed by 15 users over the company’s throttling practices, accusing Clearwire of not delivering advertised “high-speed Internet” services to customers and charging them termination fees when they walk away unsatisfied. The group even says that Clearwire is engaging in a Ponzi scheme by selling service that it can’t deliver in hopes of raking in enough money later to build out its network.

Customers began complaining in mid-2010 that Clearwire had begun to throttle their home Internet connections, sometimes as slow as 256Kbps. It wasn’t clear (ba-dum ching) at the time as to what standard Clearwire was using in order to trigger the throttling—some users were told about monthly usage caps while others were simply told that there were certain times of day in which the network would be congested. Customers were frustrated at this lack of transparency, and complaints began piling up all over the Web.

In October, Clearwire finally began clarifying how and when it decides to throttle the network, with one spokesperson saying that Clearwire tries to relieve network congestion by throttling. He added that the carrier treats everyone equally and that it doesn’t target specific applications, but it didn’t offer details on the triggers or how long the throttling sessions last.

Clearwire’s customers are now taking the carrier to task over its ambiguity. The complaint, filed earlier this month, focuses heavily on Clearwire’s advertising, which not only highlights the speed of the connection (“all but two of Clearwire’s plans propose a minimum Internet speed of 1.0Mbps”), but also the fact that there are no limits on data usage.

“Usage is unlimited—believe it. You can upload, download, and surf as much as you want for one low price with any of the CLEAR Internet plans. We don’t slow down your connection—the way some Internet providers do—if we think you are using too much bandwidth,” the complaint quotes from Clearwire’s website. (That text appears to have been removed at the time of publication).

The complaint goes on to theorize why Clearwire would purposely mislead its customers, and the conclusion is that it wanted to grow its network “in the face of well-publicized financial pressure.” (Clearwire revealed in November of last year that it will likely run out of cash by mid-2011.) “Thus, rather than limiting its subscribers to a number that its broadband infrastructure can accommodate — such that Clearwire can make good on its representations regarding high-speed service and capacity — Clearwire signed up many more subscribers than it could handle so as to maximize revenue and profit,” allege the Plaintiffs.

That’s where the supposed Ponzi scheme comes in. The Plaintiffs accuse Clearwire of selling subscriptions it can’t support in hopes of building out its network sometime in the future to “make good on its promises.” (That’s not exactly the traditional definition of a Ponzi scheme, as each customer would have to be considered an investor who recruits other investors to pay into the scheme, but we get the point.) As a result, Clearwire is accused of violating advertising and fair trade practices in six separate states with possibly more on the way, as the Plaintiffs are looking to get the suit elevated to class-action status.

The whole drama gives us flashbacks to the Comcastthrottlingdebacle, which itself generated a class-action suit that was eventually settled for $16 million. The difference, however, is that Comcast was found to be specifically targeting Bittorrent when it began throttling back customers’ connections, whereas Clearwire maintains that it is content- and application-neutral.

That’s largely within the FCC’s latest net neutrality rules, though Clearwire has done a poor job of transparency. By comparison, Verizon also began throttling its wireless data connections this year, but made a point of offering specific details on the kinds of users and content that it targets, as well as what it does to “optimize” content flowing through its network. Verizon users have not been thrilled about the change, but the uproar has been kept to a minimum in part due to Verizon’s being proactive in informing customers.

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